First Niagara Financial bucks tide, goes on offense

The cleansing of the bank’s balance sheets — coupled with an aggressive marketing campaign centered

After eight months at the helm of First Niagara Financial Group, John Koelmel had enough of playing defense.

By July 26, 2007, the new president and chief executive officer of the Lockport bank holding company had pushed through a series of restructuring initiatives. They included the elimination of 100 jobs statewide plus the sale and consolidation of several retail branches in the greater Capital Region.

In a conference call with analysts, Koelmel reported strong second quarter results and said he would follow up on them by aggressively taking market share and launching the company’s most significant marketing campaign in years. The bank, the executive said, was “ready to crank up the offense.”

Koelmel’s plan had its doubters. Its stock price that day dipped 2 percent to $12.02 per share. But by the end of 2008, Koelmel was vindicated, with First Niagara’s stock price rising 42 percent over the year to $16.17 per share. That spike came during a year when many banks struggled through the recession that started in December 2007. First Niagara ended 2008 with a net income of $88.4 million, up 5.1 percent from a year earlier.

The cleansing of the bank’s balance sheets — coupled with an aggressive marketing campaign centered on the Capital Region — helped First Niagara outperform many of its rivals.

The company’s board of directors in late 2004 promoted Koelmel, who had served as First Niagara’s executive vice president and chief financial officer since earlier that year, after ousting President and CEO Paul Kolkmeyer. Before joining the bank, Koelmel worked for 26 years at the KPMG accounting firm.

Koelmel’s task “was to make the tough decisions to position the bank for future years, and we’re really reaping the benefits” of those moves, said Thomas Amell, whom Koelmel tapped to head the bank’s eastern New York operations. In that 12-county region, First Niagara has 51 branches and 640 employees. It has 114 branches statewide and employs 2,035 company wide.

Reflecting First Niagara’s heightened focus on its eastern New York market, its loans in the area over the year rose 11.5 percent to $3.5 billion by December. The bank’s local deposit growth by September remained flat at $3 billion, but that was largely because First Niagara did not have to aggressively chase capital with high-yield certificate of deposit promotions, according to Amell.

Federal boost

Even though the bank did not chase deposits, it did accept $184 million from the federal government’s $250 billion capital purchase program, which the U.S. Department of Treasury launched in October to prop up struggling banks and encourage lending to businesses and consumers. Regarding First Niagara’s decision to take bailout funds, Amell said the bank wanted to “have it on our shelf for future use, but there was no real need attached to it.”

First Niagara’s marketing blitz reached a symbolic climax in January, when the company opened its regional headquarters in Albany, near the Harriman State Office Campus. Attempting to raise the profile of First Niagara, which entered the Capital Region’s banking market six years ago through acquisitions, the company last year erected the two-story, 35,000-square-foot headquarters.

In January, 109 employees moved into the building, though the bank in February 2008 said it would house 200. The head count is likely to grow as First Niagara grows in the area.

The Albany headquarters is the brainchild of Amell, First Niagara’s eastern New York regional president. Amell, a former Citizens Bank senior vice president, succeeded Carl Florio in March 2007. The development of the headquarters, which consolidated First Niagara’s Albany, Cohoes and Latham administrative and back office operations, was a key mission for Amell.

“We were the last to have a regional headquarters. This was a project I started on the first day of work,” said Amell, a Delmar native who now lives in Clifton Park. The bank’s Rochester and Syracuse regions already have centralized administrative offices.

Amell joined First Niagara just as Koelmel was launching his restructuring initiative and positioning it for the offensive maneuvers that began in July 2007. During the restructuring, the company moved to eliminate 100 jobs statewide mostly through attrition, closed branches in Bethlehem and Glenville and sold five branches in Greene, Washington and Schoharie counties to the Pittsfield, Mass., parent of Legacy Banks.

Koelmel finished the cleanup work Kolkmeyer started in the wake of First Niagara’s acquisition of Troy Savings Bank in 2003 and Hudson River Bank in 2005. In 2006, First Niagara closed several overlapping former Troy Savings and Hudson River branches and closed a Hudson River call center.

“It was a balance sheet cleansing that needed to happen because of our acquisitions of Troy Savings and Hudson River and Troy Savings,” Amell said.

New brand

Amell said another of his tasks is to “erase the memory” of Troy Savings and Hudson River and “develop a new brand.” When he joined First Niagara two years ago, Amell said he noted “some resistance to the change from Hudson River and Troy Savings.”

Looking forward, Amell expects to see continued loan and deposit growth in the area, despite the recession. To foster that growth, he has put tellers and other front-line workers through training programs and launched business lending operations in branches.

“The wild card is loan losses … because customers dictate their outcome,” Amell said.

The bank is hoping to take advantage of competitors increasingly reluctance to lend, even though demand remains strong for capital project funding. A recent Siena research Institute survey of upstate CEOs — commissioned by First Niagara — found that 52 percent of respondents plan to acquire fixed assets in 2009, compared with 63 percent in the previous year. The 2009 acquisition figure was slightly higher in the Albany area, where it reached 53 percent.

“There’s money to be lent in the Capital District,” Amell said

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